: Mkt Finds Solace In US Data, Rethinks Draghi Rmks
03-Aug-2012
By Vicki Schmelzer
NEW YORK, August 3 (MNI) - A flashy U.S. non-farm payroll headline
and a better-than-expected U.S. non-manufacturing ISM report helped to
underpin already improving risk sentiment Friday.
Before the data sets were released, global investors were feeling
more upbeat after doing a rethink about what European Central Bank
President Mario Draghi said a day earlier.
Overnight, the market began to shift their focus away from the fact
that Draghi disappointed, and more on the likelihood that ECB efforts,
whatever they may be, would eventually help to lower peripheral yields
and thus peripheral borrowing costs.
Stripping out "the noise," and Draghi's comments "had some legs to
it," one trader said.
As evidence of improved sentiment, Spanish 10-year yields, which
topped out a bit over 7.20% Thursday, were closing back below 7.0% into
the weekend.
Eurozone stocks soared Friday, with the German DAX closing up 3.93%
at 6865.66, and the French CAC-40 up 4.38% at 3374.19.
More importantly, the EURO STOXX 50 index, which has a 13.5% bank
weighting, closed up 4.83% at 2732.58.
Global risk appetite was further fueled by a U.S. non-farm payrolls
headline stating that payrolls rose by 163,000 in July, well above MNI's
median at 100,000.
Net downward revisions of 6,000 for the June and May numbers and a
small uptick in the unemployment rate, from 8.2165% in June to 8.2535%
in July, stole some of the headline thunder, but that did not prevent an
eventual risk rally.
The S&P 500 closed up 1.90% at 1390.99, after trading in a 1365.45
to 1394.16 range, and at levels last seen in early May. At the close,
the S&P 500 was up 10.6% year-to-date.
The index broke above the July highs of 1391.74, with the focus now
on a test of the May high of 1415.32, seen May 1.
The Reuters-Jefferies CRB index closed at 300.69, after trading in
a 295.08 to 301.13. The CRB topped out at 305.04 July 19, at two-and-a
half month highs.
NYMEX September light sweet crude oil futures settled up a whopping
$4.27 at $91.40 per barrel, after trading in a $87.23 to $91.74 range
and ICE Brent settled up $3.04 at $108.94 per barrel, after trading in a
$105.80 to $109.13 range.
West Texas Intermediate failed to revisit its July 19 high of
$92.94, but Brent took out and closed above the $108.18 peak seen that
day.
In currencies, the euro closed at $1.2378, up from overnight lows
near $1.2167, but down from the week's high of $1.2404, seen early in
ECB President Draghi's press conference Thursday.
Players will want to see a clear-cut close above $1.2405, both this
week's high, as well as the low seen June 28, the day of the EU Leader
Summit, before penciling in a test of the psychological $1.2500 level.
Ahead of the Reserve Bank of Australia and Bank of Japan decisions
next Tuesday and Thursday (rates unchanged in both cases, no new BOJ
asset purchases expected), Aussie held at $1.0560, down from the week's
high of $1.0580, seen Thursday, and dollar-yen held at Y78.57, down from
the week's high of Y78.77, seen Friday.
U.S. data may not overly excite next week (June trade report
Thursday), with Chinese data instead more in the limelight.
Key Chinese releases include: July CPI (MNI median at +1.7% y-o-y
vs 2.2% last), PPI (MNI median at -2.5% vs -2.1% in June), Fixed Asset
Investment, Retail Sales and Industrial Output (MNI median at 9.7% vs
9.5% in June) due out August 9 and trade data, money supply (MNI median
for M2 at 13.6 unchanged from June and new loans (MNI median at CNY690
billion vs CNY 919.8 billion in June), due out Friday.
RBC Capital market strategists warned to be on Italian and Spanish
aid request watch next week.
"The ECB has signaled its potential willingness to intervene in
secondary markets, but only in the context of primary market
intervention by the EFSF/ESM, which in turn requires a formal sovereign
request for aid (and MoU conditionality)," they said in a research note.
All now hinges on what trigger makes Spain and or Italy ask for
support and the timing of any request, they said.
The strategists maintained that conditions may need to worsen
before these countries capitulate and ask for assistance.
"We continue to think that both (Italy and Spain) would benefit
from a precautionary programme with the aim of maintaining primary
market access, but in our opinion, a large-scale aid programme in
unlikely to come before the German Constitutional Court ruling on the
ESM on 12 September," they said.
In addition to eurozone soundbites, global investors will also eye
two appearances by Federal Reserve Chairman Ben Bernanke for insight
into future Fed policy, as well as his take on the economy.
Bernanke speaks via recorded video Monday at 9:00 a.m. ET, to the
32nd General Conference of the International Association for Research in
Income and Wealth, in Boston, MA.
Then Tuesday, the Fed Chair hosts a town hall meeting with
educators from across the country at Board headquarters. Bernanke will
respond to questions from participants in the room and via
videoconference ( www.ustream.tv/channel/federalreserve).
"The market has a lack of confidence in the current state of the
economy," said Michael Woolfolk, senior currency strategist at Bank of
New York Mellon.
Bernanke is likely to be asked about the fiscal cliff, inflation
and the employment situation.
"Markets want to be reassured that inflation is under control and
have a reason to believe that there are better things to come in the
second half of the year," Woolfolk said.
On the eurozone front, he looked for the economies and fiscal woes
"to get worse before they get better," and warned to expect "a pick-up
in volatility in August."
Woolfolk looked for the dollar to remain the "safe-haven of first
and last choice," in the near-term.
BONY Mellon has a end of Q3 euro target of $1.1600, and end of Q4
euro target of $1.2000, and an end of 2013 euro target of $1.3000. |
